Medicare's top official last week said -- over the objections of at least one influential senator -- that the CMS likely will not extend a congressionally mandated moratorium on specialty hospitals with one of its own after the Aug. 8 deadline expires.
But even so, specialty hospital experts said they don't expect a surge of potential new hospitals opening in the weeks, months or even years following.
The moratorium, while not permanent, has had a big effect. Michael Lipomi, chief executive of Stanislaus Surgical Hospital in Modesto, Calif., and the immediate past president of the American Surgical Hospital Association, a trade group for physician-owned hospitals, said lobbying efforts from the American Hospital Association and others that created and prolonged the moratorium have effectively "stagnated" the specialty hospital industry.
"First of all, the creation of a hospital is a long-term process," he said, adding that it usually takes a minimum of three years to take a business plan from the drawing board to the board room. "And there's a tremendous cost going into it."
And that long lead time combined with the upfront money that is needed has tempered the industry's growth, Lipomi said.
Still, Lipomi said he sees the CMS' likely decision as a clear victory and validation of the studies that show that specialty hospitals have better outcomes, higher patient-satisfaction rates and better overall quality of care than other hospitals. "I congratulate (the CMS) because we have one of the most formidable lobbies in the United States opposing our small little industry."
And it's a sure bet that the lobby he refers to is spoiling for a fight. Mary Beth Savary Taylor, a vice president with the American Hospital Association, said the AHA is "disappointed" that the CMS may not extend the moratorium and plans to sway federal lawmakers to instead extend it. Ultimately, the AHA wants a permanent ban on physician self-referral, she said.
The CMS this summer will deliver to Congress its final report on specialty hospitals. Taylor said the AHA wants to give lawmakers "an opportunity to analyze it and put into place what we believe would be necessary legislative changes in this area."
While the portending battle on Capitol Hill comes as little surprise, how the CMS made the announcement did. The revelation came during a sharp exchange between Sen. Max Baucus (D-Mont.), ranking member of the Senate Finance Committee, and CMS Administrator Mark McClellan, who appeared before the committee on May 17 to talk about new Medicare quality improvement initiatives.
Baucus, who earlier said he would fight to keep at bay the "powerful interests" that lobby for specialty hospitals, asked McClellan whether his agency would use its own administrative authority to further a 3-year-old timeout period Congress put on specialty hospitals. Prior to the federal mandate, the CMS used its own authority to effectively put a freeze on further hospital development.
"Senator, the reason we used that administrative power before is because we had some unanswered questions" on how the agency defines what constitutes a hospital, McClellan said. "The question was: Is our definition of hospital appropriate given some of the recent trends in the hospital industry?"
The CMS concluded that many more general hospitals are increasingly adopting the same types of specialized services that mirror those of specialty hospitals. More and more, he said, general hospitals have added heart centers or orthopedic wings in part to woo those types of patients that Medicare pays the most for.
"We didn't see a way of changing our definition that would not also have excluded many general hospitals ... that we think are providing legitimate and effective services," McClellan said.
The charged exchange between McClellan and two of the Senate's biggest critics of physician-owned hospitals -- Baucus and Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee -- punctuated a congressional hearing that was tinged with both dramatic and political overtones.
Earlier testimony by the Rev. Mike Wilson, whose 88-year-old mother died after going into cardiac arrest following surgery at physician-owned Physician's Hospital in Portland, Ore., set a solemn tone even as it served as a launchpad for many of the senators' questions.
The Portland hospital was one of 43 physician-owned hospitals that have opened since the 2003 moratorium took effect, according to the CMS' own estimates (See story here).
Additionally, McClellan said that the CMS is exploring ways it could stop payments to hospitals and physicians for procedures and services that result in so-called "never events" -- serious medical errors such as wrong-site surgeries, mismatched blood infusions and otherwise preventable post-operative deaths (See story here).
But it was the specialty hospital issue that senators kept returning to, with Baucus at one point accusing McClellan of dodging questions by answering in a "certain little clever way."
Baucus directly asked McClellan whether specialty hospitals are designed to siphon away from general hospitals patients who are healthier and more profitable. McClellan, however, countered that it's the current Medicare payment system that is flawed and that several overhauls to its DRG codes are designed to bring those payments more in line.
Recently the Medicare Payment Advisory Commission released a report that general acute-care hospitals aren't getting slammed financially by specialty hospitals (April 24, p. 4).